[Column] Clement Tulezi: Mitigating the impact of COVID -19 to Kenya’s floriculture industry
The world is experiencing the COVID-19 pandemic, impacting world economies in unprecedented ways. It may be too early to determine the actual long-term impact on supply chains and the Kenyan economy, but what’s evident is that the economic impact of the coronavirus outbreak has begun taking hold in Kenya, with businesses and their employees suddenly confronting a harsh new reality of what lies ahead. This is much more defined in agriculture, particularly the fresh produce industry.
The Kenya cut flower industry is already experiencing the impact of restriction of the movement of people in the destination market countries. The entire market is collapsed with only Germany and UK taking up the little exports. UK Mother’s day is traditionally one of the biggest opportunities for the Kenya flower exports but the direct sales have been cut by more than 50 % and sales at the Dutch auction are down by 70% and prices are significantly down on reduced demand. Flowers are being destroyed in the European market. The US lock down has made the market slow.
The floriculture industry has resulted into reducing export volumes to below 70%, with a sizeable number suspending exports altogether.
The Kenya flower industry looks into taking austerity measures to survive such as
Downsizing and closing businesses
The lack of sales will severely impact on cash flow and will not meet fixed overhead costs. Farms will not be able to sustain their existing workforce. This situation is expected to persist for the next few months and businesses will be forced either to send workers on unpaid leave or radically lay off workers. This could trigger labour unrest and further destabilize the floriculture industry in Kenya. Farms are also harvesting and destroying the flowers. Currently 20 million kshs are lost everyday,as we are operating on 20 % capacity and 50 % of workers. If the situation persists for the next three to six weeks the workforce might me at 25%.
Limited cargo space
With the growing cancellation of inbound passenger flights, there is going to be limited space to ferry flowers. Additionally, freighters may not be able to sell all their freight space and will look for other destinations to pick up cargo. The Kenya flower industry is in talks with freighters to consolidate the little cargo available.
Disruptions in operating capital for businesses
Withreduced earnings companies will not be able to meet the costs of operations. This is against the backdrop of delayed Value Added Tax refunds, poor prices in the international market in 2019, low volumes this year during the valentine’s period and escalating cost of doing business locally.
The industry is also keen on ensuring hygiene is maintained in farm levels as they encourage workers to also work on social distancing.
The Kenya flower industry is in talks with the government for support. They have outlined the following proposals to the government:
Fast-track VAT refunds
The government should expedite the 9billion VAT refunds owed to flower companies. This will improve cash flow and help contain workers and operations.
Allow freight handlers to continue operations unhindered
We request that the government to continue facilitating freighters on airlifting Kenya’s exports unhindered with full support by KEPHIS and KAA.It could also consider reducing landing fees at JKIA. Similarly, trucks carrying produce should not be harassed between farms and airport.
Suspension on VAT on inputs and spare parts
The government should consider suspending VAT on farm inputs, including fertilizers, pesticides, machinery etc.., to help meet other cost productions costs.
We also urge the government to support the industry in labour management and facilitate discussions with unions and employee organisations and also offer moratoriums on principal repayments of term loans.
Cut-flowers earned Kenya Sh113 billion in 2018, a 38 percent increase compared to 2017. In addition to being among Kenya’s highest contributor to foreign exchange, the floriculture industry employs over 150,000, of which more than half women, and overall creates employment for more than a million people indirectly and impacting in excess of 6 million lives. The industry hopes the situation will be addressed as farms may not be able to expand.